The Ontario government says it will tie funding for the province’s 150 hospitals to their ability to deliver more efficient patient care. This is a welcome development, but as always the devil will be in the details. The broad outline of the new funding arrangement, released Monday by provincial Health minister Deb Matthews, looks far from revolutionary. Indeed, it more resembles the same old wine in new skins. There are tantalizing tidbits, but my guess is little will change that will make any difference to patients, such as fewer months waiting for surgery or less-clogged emergency wards.

The key, of course, is whose definition of efficient will determine which hospitals receive more funding and which are penalized?

There’s a famous episode of the 1980s British sitcom, Yes, Minister, in which Jim Hacker, the minister of Administrative Affairs, is set to award a new North London hospital with a prize for being the most efficiently run in the entire country. During his visit, however, he learns the institution is so efficient because it has no doctors or nurses and no patients, either. It’s only employees are administrators and custodians.

That’s the kind of efficiency that makes sense only to bureaucrats. And Ontario’s new hospital budgeting scheme may be following similar lines.

Ms. Matthews said under the new plan, “funding will follow the patient.” This was a theory devised by public-choice economists in the United States in the 1980s to help public institutions adopt incentives that mimicked those in the private sector. If public hospitals were paid only on a per-patient basis (or public schools only for each student enrolled) — rather than knowing they could count on one big, lump-sum annual payment from government — they might work harder to improve their services so they could attract more patients (or students) and, thus, more funding.

But that is not what Ontario is proposing — at least not entirely.

Under a true funding-follows-the-patient model, hospitals would be paid a fee for each procedure they performed, say $1,200 for an uncomplicated baby delivery, $3,500 for an appendectomy or $25,000 for an emergency heart bypass. If a hospital could provide a service for less than the set fee, it could keep the excess to pump into other services or into buying new equipment. If it couldn’t provide a service for the amount the province was willing to pay, it would have to look for ways to cut costs and become more efficient.

But what Ontario has announced is some distance from this. Under the Liberal provincial government’s new Health Based Allocation Model (HBAM), beginning April 1, it is claimed that 40% of hospitals’ budgets will be determined by the rise or fall of the population in the region they service and the average age of that population. In practice, though, no hospital could gain more than 2% in a year or lose more than 3%. Hospitals in areas with growing populations or aging ones, or both, will receive more funding. Those in centres with declining populations or relatively younger populations (older patients require more care) will receive less funding.

However, this is just a different way of allocating global annual budgets. Central bureaucrats will analyse census data to determine which hospitals will receive a little bit larger yearly budget and which a little bit smaller. There will be no truly meaningful incentives for hospitals to provide faster, more efficient care for patients. Funding will not be tied to performance.

Sixty percent of hospital funding will still be allocated, more or less, using the old one-size-fits-all formula. Just as in the most-efficient hospital episode of Yes, Minister, the determination of which hospitals are rewarded will be based almost entirely on criteria that matter only to civil servants and not to patients.

There is a tiny glimmer of hope in the announcement that hospitals will be paid on a fee-for-service basis for hip and knee replacement, dialysis and cataract removal. But here the problem will be whether or not the Liberal government has the stomach to carry through with its proposal. It has been only a month since Don Drummond brought down his comprehensive balancing plan from the provincial budget and already the government of Premier Dalton McGuinty is running away from its recommendations because of pressure from public-sector unions and special interest groups. Ms. Matthews said that over the next three years, the list of fee-for-service procedures would expand. Let’s hope so. However, given the Liberals’ track record, the greater likelihood is that they will encounter resistance from hospitals or unions or editorialists and will shrink the list rather than growing it.

If the Ontario Liberals were truly serious about improving health outcomes for Ontarians while also controlling the cost to taxpayers, they might consider adopting the Stockholm model. In the Swedish capital, the national government still pays for all services on behalf of patients (individual Swedes are not out-of-pocket for their health care), but public and private health care providers are welcome to bid on service delivery. It matters not whether a health service is provided by a public hospital or a private health care company. The most efficient provider wins the contract.

That is genuinely innovative. The “new” Ontario plan simply amounts to changing the mannequins in the windows of the same old store.

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